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The dollar trades weaker as the U.S. government enters a partial shutdown.
U.S. politicians were unable to agree on new spending legislation that would have allowed the government to raise the debt cap and continue funding day-to-day government business.
"Affected agencies should now execute their plans for an orderly shutdown," the Office of Management and Budget (OMB) said on Tuesday night.
Non-core government functions are now in shut-down as a result, and analysts we follow say this is likely to weigh on the dollar.
"The Dollar can underperform into a U.S. Government shutdown," says Themistoklis Fiotakis, an analyst at Barclays.
The data agrees with the assessment, with the Greenback losing value against most peers for three days in succession, and Wednesday's losses suggesting we could be in for a fourth.
Japan's yen leads the charge in this environment, but the pound to dollar exchange rate is also taking advantage, rising from last week's lows at 1.3323 to 1.3469 at the time of writing midweek.
A shutdown became a certainty after lawmakers voted down a pair of stopgap funding packages — one a "clean" bill offered by Republicans, the other filled with Democratic priorities — on Tuesday evening.
Unless politicians can agree a deal and get the government moving again, a host of important U.S. data releases will be delayed, including Friday's important jobs report.
This leaves the Federal Reserve 'flying blind' and raises the odds of them delivering another 'insurance' interest rate cut. As rate cut bets rise again, so the dollar would come under pressure.
General uncertainty will rise, in turn hurting investor sentiment and business confidence, which speaks of softening economic trends over the coming days and weeks. Of course, the longer the shutdown extends, the more serious the implications.
"While the S&P 500 has historically remained stable, this time a prolonged blockage with data gaps could pose particular risks against the backdrop of currently high valuation levels and challenging conditions for the US Federal Reserve," says Birgit Henseler, economist at DZ Bank.
Insofar as the shutdown plays USD negative, further gains in GBP/USD will arise as the shutdown extends.
Above: GBP/USD at daily intervals. The break above the nine-day moving average (blue) line signals a shift in near-term momentum from lower to higher.
"The longer the current standstill lasts, the greater the risk that the markets will react more nervously," says Henseler.
But should the shutdown be shortlived the impact will be minimal and the dollar should recover in quick time, which is worth considering if you have dollar payments due.
A worrying sign for markets is the intransigence being displayed by both Democrats and Republicans, with both sides seemingly happy to play a blame-game for the time being.
Getting into the technicals, the shutdown centres on Democrat demands that the stopgap bill include a provision to extend the enhanced Affordable Care Act subsidies. Republicans, meanwhile, refuse to include the credits in government funding negotiations.
The tax credits are set to expire at the end of the year and are expected to cause an increase in health insurance premiums.
However, reports suggest enough Democrats could soon vote on the Republican bill, fearing the effect of a shutdown on their constituents. Meanwhile, Republicans are tipped to offer enough to get a few more votes from the opposition party across the line.